Process: 385/2015-T

Date: January 13, 2019

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitral decision addresses the constitutionality and application of Stamp Tax under Item 28.1 of the General Stamp Tax Table (TGIS) on buildable land valued over €1,000,000 intended for residential construction. The original 2015 decision annulled the €21,151.10 assessment, refusing to apply Item 28.1 based on violation of the equality principle (Article 13 CRP). The Public Prosecutor's Office (Ministério Público) appealed to the Constitutional Court under Article 280 CRP. Constitutional Court Decision 443/2018 reversed the arbitral ruling, declaring Item 28.1 TGIS not unconstitutional when applied to buildable land for residential purposes valued at or above €1,000,000. The arbitral proceedings were subsequently reopened to issue a new decision consistent with the Constitutional Court's ruling. On reassessment, the tribunal examined whether the property met all three requirements: (i) buildable land status, (ii) tax value exceeding €1,000,000, and (iii) construction authorized or envisaged for residential purposes. While requirements (i) and (ii) were clearly met, the tribunal found insufficient proof that construction was specifically intended for residential purposes. The tribunal emphasized that mere registration as buildable land with residential location coefficient is inadequate; actual building potential must be evidenced through administrative authorization, and the authorized construction must be demonstrably for residential use. Since the Tax Authority failed to prove the residential purpose requirement, the assessment was annulled despite the Constitutional Court's finding of constitutionality, illustrating that constitutional validity does not guarantee automatic applicability without meeting all statutory incidence requirements.

Full Decision

ARBITRAL DECISION

REOPENING OF PROCEEDINGS

By decision dated 30-11-2015, this Court granted the applicant's request for annulment of the Stamp Tax assessment on item 28.1 of the General Stamp Tax Table ("GSTT") for the year 2014, in the following terms:

"In accordance with the foregoing, this Arbitral Court hereby decides to fully uphold the applicant's request, whereupon, under article 204 of the CRP, the application of the provision of item 28.1 of the GSTT is refused due to violation of the principle of equality (based on contributory capacity) provided for in article 13 of the CRP. Consequently, the Stamp Tax assessment now being contested is declared illegal due to absence of enabling norm, in the amount of €21,151.10, which shall be annulled, with consequent refund to the applicant of the amounts unduly paid."

The Public Prosecutor's Office filed an appeal of the decision to the Constitutional Court, pursuant to article 280, no. 1, paragraph a) of the Constitution of the Portuguese Republic and articles 70, no. 1, paragraph a), 72, no. 1, paragraph a) and no. 3 of Law no. 25/82 of 15 November, and 25, no. 1 of the RJAT, which was admitted by this court by order of 22-12-2015.

In Constitutional Court Decision no. 443/2018 of 02-10-2018, handed down by the 1st Section of the Constitutional Court, which became final on 18-10-2018, the following decision was rendered:

"III. Decision

For the foregoing reasons, it is decided to uphold the appeal, declaring the provision contained in Item 28.1 of the General Stamp Tax Table, approved by Law no. 55-A/2012 of 29 October, and amended by Law no. 83-C/2013 of 31 December, not unconstitutional, insofar as it imposes annual taxation on ownership of buildable land where construction, authorized or envisaged, is for residential purposes, with a tax-valued property worth equal to or exceeding €1,000,000.00".

Following this decision, the present arbitral proceedings are reopened in order that, in accordance with what was determined by the Constitutional Court, a new decision on the dispute be rendered, as follows:

II. FACTUAL MATTERS

A. Established Facts

The following facts are established:

  1. The applicant is a commercial company engaged in the activity of "real estate promotion and management and purchase for resale or lease of real estate assets".

  2. The applicant is the owner of the urban property located on Rua..., parish of..., municipality of Porto, registered in the urban property register of said parish under article....

  3. The property is described in the register as "buildable land".

  4. The property has a tax-valued property worth of €2,115,110.00.

  5. The register shows that the property was assigned the location coefficient provided for residential purposes.

  6. On 20-03-2015 the Tax Authority proceeded to assess Stamp Tax on item 28.1 of the GSTT with reference to the property described in point 2, in the total amount of €21,151.10.

  7. For payment of the aforementioned tax, payment notes were issued with numbers 2015..., 2015... and 2015..., with maturity dates in April, July and November 2015, respectively.

  8. The payment notes identified in the preceding point were paid on 30-04-2005, 29-07-2015 and 02-11-2015, respectively.

B. Unestablished Facts

No other facts with relevance to the arbitral decision were established.

C. Grounds for the Factual Matters

The factual matters established are based on documentary evidence presented and not contested.

III. LEGAL MATTERS – FRESH ASSESSMENT

Given that the Constitutional Court declared the provision in item 28.1 of the GSTT not unconstitutional, its application in the case at hand cannot be refused on that ground.

Without prejudice, given the request made by the applicant seeking a declaration of illegality of the assessments challenged, it is necessary to analyze the validity thereof, deciding on the applicability of item 28.1 of the GSTT to the situation described in the case file.

It is therefore necessary to assess whether, in the case at hand, the objective incidence requirements set forth in item 28.1 of the GSTT are met, namely:

(i) that it is buildable land;

(ii) with a tax-valued property worth equal to or exceeding €1,000,000.00; and

(iii) where construction, envisaged or authorized, is for residential purposes.

Taking into account the list of established facts, there is no doubt that points (i) and (ii) are met, given that both properties subject to taxation are buildable land with tax-valued property amounts exceeding the legal minimum referred to.

As to point (iii), namely, the type of construction, envisaged or authorized, for said buildable land, the case file reveals only what was established: the properties were assigned the location coefficient provided for residential purposes.

Now, as decided in arbitral process no. 150/2017-T, "It is not merely the registration in the property register as 'buildable land' that entails the inevitable application of item 28.1 of the GSTT, since it does not in itself constitute conclusive proof that a given property has construction for residential purposes envisaged. See in this regard JOSÉ MANUEL FERNANDES PIRES, (Lessons on Property and Stamp Taxes. Coimbra, Almedina, 3rd ed., 2015, pp. 110 to 112): 'The right to build is not inherent in the right of ownership, but arises ex novo in the owner's patrimony only when an administrative act of the competent public authority recognizes and authorizes the owner to build or subdivide. [...] only when that right is constituted in the legal sphere of the owner does the Property Tax Code establish that we are dealing with buildable land'."

Thus, it appears clear that for the verification of the regulatory provision, mere registration in the property register of a property as buildable land allocated to residential purposes is not sufficient, since the definition of the objective incidence at issue does not dispense with proof of actual building potential, necessarily evidenced by the existence of documentary evidence authorizing it. That is to say, for purposes of item 28.1 of the GSTT, the incidence of the tax materializes itself, and even then not in definitive or complete terms, only with the verification of an "effective allocation", to use the apt expression of JOSÉ MANUEL FERNANDES PIRES (op. cit., p. 507). (...)

Now, without proof of that actual building potential, item 28.1 of the GSTT does not appear to be applicable. However, for purposes of the application of item 28.1 of the GSTT, that actual building potential is not enough. It is necessary to prove that the construction, authorized or envisaged, is for residential purposes. That is to say, it cannot be for a purpose other than residential purposes, since, as it appears to us, construction for commerce or industry will not give rise to the application of the norm to which we have been referring."

Now, in the present case file, the applicant, albeit without offering proof, contested such allocation, expressly alleging the following:

  • article 27 of the pleading: "Notwithstanding having the capacity for residential buildings to be constructed thereon – as well as other types of buildings – it is not, in itself, a property capable of being inhabited";

  • article 30 of the pleading: "It suffices to note the gross dependent area indicated in the register – 1,768.50 m² – to conclude that an important part of the property will have other purposes";

  • article 31 of the pleading: "As, moreover, was always envisaged in all prior information requests and projects submitted to the Porto City Council";

  • article 40 of the pleading: "It was under this new wording that the tax assessment now being challenged was issued, notwithstanding the applicant's property not currently having construction, authorized or envisaged, exclusively intended for residential purposes".

For its part, the respondent failed to prove that the construction, envisaged or authorized, for the property in question was intended for residential purposes (limiting itself merely to invoking the coefficients considered for purposes of determining the respective tax-valued property amounts and contained in the property register).

From the case file nothing further results beyond the information contained in the property register, which, as referred to above, cannot be considered sufficient for purposes of verifying the objective incidence requirements.

Thus, in this court's view, the absence of concrete proof regarding any possible allocation of the constructions envisaged or authorized for the property in question must operate to the detriment of the respondent, pursuant to article 74 of the LGT, which expressly provides that "The burden of proof of facts constitutive of the rights of the tax administration or of taxpayers falls upon whoever invokes them."

As stated in the arbitral decision handed down in process no. 418/2016-T[1], which we hereby endorse: "As has already been mentioned, both in the administrative proceedings and in the case file, it is only alleged and only proved that the 'Location Coefficient: residential' and the 'Allocation: residential', which under the terms cited above is insufficient to ground the requested assessment. This is because the burden of proving those requirements legitimizing the taxation fell to the respondent. Yet it fails to demonstrate this by not evidencing the authorization or the envisagement of construction intended for residential purposes, and thus the incidence provision of the tax serving as the basis for the assessment is not shown to be satisfied. For it to have been authorized, designed or envisaged that a building is for residential purposes constitutes a fact whose burden of proof falls to the respondent, as it constitutes an essential fact for integrating the provision, as an element of real incidence of the tax and being therefore constitutive of the right to assess it."

In light of the foregoing, this court concludes that an essential requirement for purposes of objective incidence is not met – that it is buildable land where construction, envisaged or authorized, is for residential purposes – and consequent taxation, and such requirement cannot be presumed solely from the content of the property register entry.

The request for arbitral ruling filed by the applicant therefore merits favorable disposition, and this court concludes that the act of assessment of Stamp Tax on item 28.1 of the GSTT, with reference to the year 2014, is illegal and shall be annulled, with all further legal consequences.

IV. DECISION

In accordance with the foregoing, this Arbitral Court hereby declares the Stamp Tax assessment challenged to be illegal, in the amount of €21,151.10, which shall be annulled, with consequent refund to the applicant of the amounts it has paid.

Value of the case: In accordance with article 306, no. 2 of the CPC and 97-A, no. 1, paragraph a) of the CPPT and 3, no. 2 of the Regulation on Costs in Tax Arbitration Proceedings, the case is valued at €21,151.10, corresponding to the amount of the assessment challenged.

Costs: Pursuant to no. 4 of article 22 of the RJAT, the amount of costs is fixed at €1,224.00, in accordance with Table I appended to the Regulation on Costs in Tax Arbitration Proceedings, to be borne by the respondent.

This arbitral decision shall be registered and notification thereof sent to the parties.

Lisbon, 13-01-2019

The Sole Arbitrator

(Maria Forte Vaz)

REPORT

A..., S.A., NIPC..., with registered office at Avenida ..., ...–..., Porto (hereinafter referred to only as the applicant), filed on 16-06-2015 a request for constitution of a sole arbitral tribunal, pursuant to articles 2 and 10 of Decree-Law no. 10/2011 of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in conjunction with paragraph a) of article 99 of the CPPT, in which the Tax and Customs Authority (hereinafter referred to only as the respondent) is summoned.

The applicant requests a declaration of illegality of the act of assessment of Stamp Tax on item 28.1 of the General Stamp Tax Table ("GSTT") for the year 2014, in the amount of €21,151.10, with reference to buildable land registered in the urban property register of the parish of..., municipality of Porto, under article....

The request made is based on the alleged unconstitutionality of said provision of the GSTT due to violation of the principles of equality, prohibition of double taxation (inferred from the principle of contributory capacity) and fiscal neutrality.

The request for constitution of the arbitral tribunal was accepted by the Honorable President of CAAD on 18-06-2015 and notification thereof was sent to the Tax and Customs Authority on that same date.

Pursuant to paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, the Deontological Council designated the undersigned as arbitrator of the sole arbitral tribunal, who communicated acceptance of the assignment within the applicable period.

On 07-08-2015 both parties were duly notified of that designation, and neither manifested an intention to refuse the designation of the arbitrators, pursuant to the combined terms of article 11, no. 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

In accordance with the provision of paragraph c) of no. 1 of article 11 of the RJAT, the sole arbitral tribunal was constituted on 25-08-2015.

Following the respondent's reply, the applicant dispensed with the production of witness evidence that it had initially indicated, as well as with holding the meeting provided for in article 18 of the RJAT and the production of oral or written arguments. Notified to comment, the respondent made no statement.

Thus, by order of 28-10-2015, the meeting provided for in article 18 of the RJAT and the production of arguments by the parties were dispensed with, as this court deemed itself in a position to rule on the applicant's request.

By petition of 06-11-2015, the applicant filed with the case documents the payment notes for the second and third installments of the Stamp Tax that is the subject of these proceedings, without objection from the respondent.

By petition of 19-11-2015, the respondent filed with the case a copy of Constitutional Court Decision no. 590/2015, handed down by the 2nd Section of the Constitutional Court on 11-11-2015, which drew a reaction from the applicant on 25-11-2015, thus ensuring procedural contradiction.

The Arbitral Court was regularly constituted and is competent.

The parties possess legal personality and capacity and are legitimated (articles 4 and 10, no. 2 of the same statute and article 1 of Ministerial Order no. 112-A/2011 of 22 March).

The case is not affected by nullities.

II. THE APPLICANT'S REQUEST

The applicant requests a declaration of illegality of the act of assessment of Stamp Tax on item 28.1 of the General Stamp Tax Table ("GSTT") for the year 2014, in the amount of €21,151.10, with reference to buildable land registered in the urban property register of the parish of..., municipality of Porto, under article....

The request made is based on the alleged unconstitutionality of said provision of the GSTT due to violation of the principles of equality, prohibition of double taxation (inferred from the principle of contributory capacity) and fiscal neutrality.

In the applicant's view, item 28.1 of the GSTT, both in its original wording and in its current wording, introduced by article 194 of Law no. 83-C/2013 of 31 December, is unconstitutional due to violation of the principle of equality insofar as it introduces an unjustified discriminatory regime for urban properties allocated to residential purposes with a tax-valued property amount exceeding €1,000,000, as opposed to urban properties intended for other purposes and rural properties of equal or greater value. It invokes here the decision handed down in process no. 292/2014-T of this Arbitration Center, in which the arbitrator concluded that "We believe that the provision in question, which added item no. 28 to the GSTT, is affected by material unconstitutionality due to violation of the principle of equality. It is important to note that the configuration of the tax fact, which makes a distinction among various uses and allocations of the properties in question, does not appear to be justified in the name of the objective of the fiscal measure adopted. If the concern is the taxation of higher patrimony, what is the reason for that taxation, in the case in question of real patrimony of which the taxpayer is the owner, not taxing all such properties, in their multiple sub-distinctions? If one looks closely, there are various categories of properties that fail to subject themselves to this new taxation:

  • non-urban properties;

  • urban properties that do not correspond to the specifications of items nos. 28.1 and 28.2.

The rationale for not including all such uses and allocations is not apparent, and if all of them were included, the tax revenue would be greater and would equalize taxpayers on the basis of a single tax-valued property amount."

Invoking, further, the above-mentioned decision, the applicant considers that the norm in question is unconstitutional due to infringing the constitutional prohibition of legal double taxation (which is also, in the case, economic double taxation) that is inferred from the principle of contributory capacity, since it causes simultaneous taxation, in the person of the same taxpayer, of ownership of real rights under the Property Tax Code and under the Stamp Tax Code. This double taxation implies a distortion of the coherence among taxes and the coherence of the fiscal system as a whole, making its justification impossible in light of the principle of contributory capacity.

The applicant further contends that item 28.1 of the GSTT is unconstitutional due to violation of the principle of equality and the fiscal neutrality underlying paragraph e) of article 81 of the CRP, insofar as, subjecting to taxation buildable land intended for the construction of buildings for residential purposes and exempting buildable land intended for the construction of buildings for commerce and services, it discriminates based on construction intentions or designs that have nothing to do with contributory capacity assessed in immediate terms by ownership of identical assets: buildable land. This difference in treatment implies, ultimately, different treatment among economic agents engaged in the construction and promotion of real estate for residential purposes and those engaged in the construction and promotion of real estate for commerce or services, with consequent violation of the principle of fiscal neutrality. With regard to economic agents that incorporate buildable land in their production process, in the applicant's view, there would be differentiated treatment, unduly burdening those engaged in the construction of buildings for residential purposes.

For all these reasons, the applicant concludes that item 28.1 of the GSTT is unconstitutional and, consequently, that the act of assessment now being contested is illegal and shall be annulled, with subsequent refund to the applicant of the tax unduly paid.

III. THE PUBLIC TREASURY'S REPLY

In its reply, the respondent raises, as a preliminary matter, the impossibility of this court ruling on the applicant's request since it would not have the power to decide on the alleged unconstitutionality of item 28.1 of the GSTT raised in the initial petition.

As to the specific vices pointed out by the applicant regarding item 28.1 of the GSTT, the respondent considers that they should not be accepted by this court, relying on the recent Constitutional Court Decision no. 590/2015 handed down by the 2nd Section of the Constitutional Court in process no. 542/2014 on 11-11-2015.

Indeed, the different treatment among properties intended for residential purposes and properties with other purposes or rural properties results from a choice of the legislature based on the different suitability of the properties in question, without any discriminatory character. The introduction of this tax had as its objective the rebalancing of the distribution of the burdens of austerity necessary to comply with the adjustment program, so that it would not fall only on those living from employment income. And that distribution of burdens was realized through the taxation of properties that the legislature considered as properties of high value intended for residential purposes, such as luxury homes, that is, properties allocated to residential purposes with a tax-valued property amount exceeding €1,000,000.

With this tax, the legislature intended to tax individual property components of the taxpayer's patrimony regarded as "luxury goods" by considering that such real properties would be revealing of increased contributory capacity capable of justifying a reinforcement of the contribution of their owners in the effort to achieve budget consolidation. The legislature's intention was not to tax patrimony globally considered as high value, having restricted the scope of incidence to properties it considered truly "luxury goods".

For its part, the exclusion from the scope of incidence of properties intended for other purposes, including rural properties, derives from the very difference in the fiscal treatment of such goods. In truth, the legislature created, within the scope of the Property Tax Code, a distinction among various types of properties, attributing to them specific regulation. The differentiated fiscal treatment will be nothing more than the law's acceptance of the material and substantive differences among various realities, without that implying any violation of the principle of legality. And it is those material and economic differences that, in the respondent's view, allow for a distinction that was also justified by the need not to burden properties intended for the development of economic activities so as not to affect the international competitiveness of Portuguese companies.

As to the alleged violation of the constitutional prohibition of double taxation, the respondent considers that there is no provision of the CRP that prevents or prohibits double taxation, and therefore this position of the applicant should be rejected.

The respondent concludes, therefore, that item 28.1 of the GSTT complies with the CRP, with no ground for any finding of unconstitutionality due to violation of the principle of equality or contributory capacity. The creation of this tax results from the legislature's freedom of choice, duly justified and reasoned in the political-financial context at the time. On that basis, the applicant's request should be entirely rejected.

IV. FACTUAL MATTERS

A. Established Facts

The following facts are established:

  1. The applicant is a commercial company engaged in the activity of "real estate promotion and management and purchase for resale or lease of real estate assets".

  2. The applicant is the owner of the urban property located on Rua..., parish of..., municipality of Porto, registered in the urban property register of said parish under article....

  3. The property is described in the register as "buildable land".

  4. The property has a tax-valued property amount of €2,115,110.00.

  5. On 20-03-2015 the Tax Authority proceeded to assess Stamp Tax on item 28.1 of the GSTT with reference to the property described in point 2, in the total amount of €21,151.10.

  6. For payment of the aforementioned tax, payment notes were issued with numbers 2015..., 2015... and 2015..., with maturity dates in April, July and November 2015, respectively.

  7. The payment notes identified in the preceding point were paid on 30-04-2005, 29-07-2015 and 02-11-2015, respectively.

B. Unestablished Facts

No other facts with relevance to the arbitral decision were established.

C. Grounds for the Factual Matters

The factual matters established are based on documentary evidence presented and not contested.

V. ISSUES TO BE DECIDED

From all the foregoing, it is necessary for this court to decide the following issues:

  1. The court's competence to consider the applicant's request;

  2. The illegality of the Stamp Tax assessment challenged on the grounds of unconstitutionality of item 28.1 of the GSTT, in the wording introduced by Law no. 83-C/2013 of 13 December.

a) On the Court's Competence

As to the alleged incompetence of this court to consider the issues raised by the applicant, it must be stated from the outset that this argument does not hold.

In this court's view, there has been some misunderstanding by the respondent as to the applicant's request. Indeed, what the applicant seeks is a declaration of illegality of the assessment challenged, based on the unconstitutionality of the norm that sustains it. And this conclusion regarding the object of these proceedings is evident from the request ultimately made by the applicant: "Wherefore the act of assessment of stamp tax for the year 2014 on the property identified in article 2 of this petition should be annulled, with all legal consequences".

Contrary to what the respondent appears to have interpreted from the applicant's request and allegations, it is not intended that this court substitute itself for the Constitutional Court and declare item 28.1 of the GSTT unconstitutional; rather, it is intended that this court, within the scope of the powers legally recognized to it, judge the norm in question to be unconstitutional, thus refusing its application to the specific case. Given that the norm cannot be applied in concrete terms, the tax act that results from the execution of the same will consequently be illegal and, as such, subject to annulment.

What is at issue in these proceedings is therefore the legality of the assessment, and in order to be able to decide, this court will necessarily have to, by constitutional imperative (article 204 of the CRP), assess the constitutional conformity of the norms that legally sustain it.

In light of the foregoing, the alleged incompetence of this court is considered not well-founded, and it is further determined that, pursuant to article 204 of the CRP, for the full and complete performance of the jurisdictional function entrusted to this arbitral court under the RJAT, it shall assess the constitutional conformity of the legal norms underlying the assessment challenged, and shall refuse their application in concrete terms if it concludes that they are unconstitutional.

b) On the Unconstitutionality of Item 28.1 of the GSTT

From the combination of the allegations made by the parties, it is necessary to determine whether item 28.1 of the GSTT is or is not unconstitutional due to violation of the principle of equality (article 13 of the CRP), the prohibition of double taxation (inferred from the principle of contributory capacity as a concrete expression of the measure of equality) and fiscal neutrality [article 81, paragraph e), of the CRP].

As to the alleged violation of the prohibition of double taxation, this court agrees with the respondent's position, considering it to be without merit.

Indeed, and contrary to what is alleged by the applicant, the CRP does not provide, either expressly or implicitly, for the prohibition of double taxation, nor can this be inferred from the principle of contributory capacity as the legitimating and limiting element of the tax.

This same conclusion is reached by José Casalta Nabais[2] when he writes that "Fiscal equality, assessed by contributory capacity, in principle does not preclude the existence of double (or multiple) legal or economic taxation (internal). Indeed, the legislature is not constitutionally prevented, notably by force of the principle under analysis, from establishing situations of double taxation (...) since it cannot fail to enjoy broad freedom with respect to the concrete configuration of the fiscal system".

However, this freedom recognized in the legislature is not unlimited, and must be bounded by the principles that inform any fiscal system. On that basis, and as the aforementioned author states, the cumulation of taxes is admissible because "(...) the legislature enjoys broad freedom, being only prevented, on the one hand, from such accumulation resulting in excessive taxation or of a confiscatory character and, on the other, from establishing double taxation that proves to be arbitrary as to the scope of taxpayers covered, by subjecting specific taxpayers to an excessive tax burden while not subjecting others with an identical situation in terms of contributory capacity."[3]

It is thus considered that any double taxation does not, by itself and independently, have legal relevance to sustain a finding of unconstitutionality. A tax that implies double taxation of the taxpayer is not, for that reason alone, unconstitutional. Assessment of constitutional conformity shall be made in function of the tax's own characteristics and compliance with the fundamental principles of legality, contributory capacity, proportionality and equality. And it will be the possible violation of these principles and norms of the CRP that can sustain a finding of unconstitutionality.

This same point has already been recognized by the Constitutional Court in the decisions invoked by the respondent (see Constitutional Court Decision no. 363/01 of 12 July 2011, and Constitutional Court Decision no. 489/02 of 26 November 2002), as well as by the Supreme Administrative Court (see decision of 12 July 2006, handed down in process no. 0126/06).

In light of the foregoing, the allegation of unconstitutionality due to violation of the prohibition of legal double taxation is without merit.

As to the alleged violation of the principle of equality (article 13 of the CRP), in its aspect of contributory capacity, the respondent makes an extensive exposition, seeking to justify the difference in treatment imposed by item 28.1 of the GSTT, with particular emphasis on the freedom of configuration of the tax system recognized in the legislature and the fact that the economic and legal rationale of the tax in question takes as the element revealing of relevant contributory capacity the ownership of homes (properties allocated to residential purposes) with a tax-valued property amount exceeding €1,000,000. In the respondent's words, it would be justifiable to require an additional contribution from owners of such properties for the effort to consolidate public accounts, thus allowing for a rebalancing of the distribution of burdens among various taxpayers, with relief for those living from employment income. This understanding was also endorsed by the Constitutional Court in the aforementioned Decision no. 590/2015 of 11-11-2015.

It happens, however, that, on this point, the court agrees with the applicant's position, considering that, notwithstanding the justification presented by the legislature for the introduction of this tax and the economic rationale underlying the same, the truth is that the difference in treatment between properties allocated to residential purposes and other urban properties with different uses cannot be justified.

As José Casalta Nabais[4] states, "(...) the principle of equality of taxation, based on the principle of contributory capacity, tells us that people are taxed in accordance with their respective contributory capacity, which means, on the one hand, that those people who do not possess that capacity will be excluded from the scope of incidence of taxes and, on the other hand, that among those with contributory capacity, taxpayers with the same capacity will pay the same tax(es) (horizontal equality) and taxpayers with different capacities will pay different taxes, either in qualitative or quantitative terms (vertical equality)."

It happens that this court is unable to see how the contributory capacity revealed by the owner of an urban property allocated to residential purposes with a value exceeding €1,000,000 is different – and a justification for requiring an additional contribution to the consolidation of public accounts – from that of an owner who holds a property allocated to commerce/services of equal tax-valued property amount. In fact, the legislature did not demonstrate justification for this difference in treatment, and, unless we are mistaken, this issue is also not resolved in the aforementioned Constitutional Court decision.

If, as the respondent alleges and results from the public discussion of the statute that introduced such tax, the objective was to rebalance the distribution of the burdens of austerity, requiring an additional effort from taxpayers who revealed greater contributory capacity through the ownership of real estate patrimony of high value (exceeding €1,000,000), the difference in contributory capacity between a taxpayer owning property for residential purposes worth €1,000,000 and a taxpayer owning property for commerce or services of equal value is not apparent.

Against this understanding, the respondent's position that it is the law itself – article 6 of the Property Tax Code – that makes a distinction among urban properties allocated to residential, commercial, industrial or services purposes, buildable land, etc., "and therefore, contrary to what the applicant seeks, it cannot even be admitted that such situations should be subject to the same kind of regulation, and it is certain that they differ in substance, and therefore it is imperative to treat unequally what is not equal, thereby fully complying with the constitutional provision on equality" (see article 127 of the Reply) does not proceed.

For the respondent, the difference in treatment in Stamp Tax would result from the very distinction provided for in the Property Tax Code, which in turn would result from the material difference and in terms of substance of the properties in question.

Now, although this material difference between a property allocated to residential purposes and a property allocated to commerce/services justifies differences in regulation (notably regarding the weighting of building areas and the coefficients applied, for example), the truth is that this does not translate into a difference in taxation, more specifically with regard to the tax rate. Indeed, regardless of the use or allocation of the property, the tax rate for urban properties, built or not, is exactly the same, so that a property allocated to residential purposes with a certain tax-valued property amount will, at the outset, pay exactly the same tax as a property allocated to commerce with the same tax-valued property amount, located in the same municipality.

Note that under the Property Tax Code, the difference in treatment occurs at the level of determining the values of fiscal relevance for incidence, but not at the level of taxation itself, with the law not providing for differentiation of rates according to the type of allocation of urban properties.

And this is precisely because it is considered that, given the adjustment of the assessment criteria in function of the allocation of the properties, the tax-valued property amounts fixed by assessment under the Property Tax Code will actually correspond to the revelation of comparable contributory capacities. Hence the subjection to the same tax rate: the revealed contributory capacity is comparable, and the assessment system provided for in articles 37 and following of the Property Tax Code ensures the differentiated treatment of that which, fiscally, would have relevance to justify differentiated treatment.

The substantive difference among a property allocated to residential purposes, a property allocated to commerce, or buildable land was considered, in tax terms, in the fixing of the assessment criteria themselves, which makes it possible to fix an equal Property Tax rate for urban properties, regardless of their respective allocation.

Accordingly, owners of urban properties with tax-valued property amounts exceeding €1,000,000 will reveal exactly the same contributory capacity, and for this purpose the use or allocation of said properties will be entirely irrelevant.

The measure of the contributory capacity for the property tax should always be the value of that same property, with allocation not being a sufficiently relevant element to justify differentiated treatment. An urban property worth €1,000,000 will be worth, fiscally, exactly that same amount regardless of whether it is allocated to residential, commerce or services purposes. Allocation to residential purposes is not, and cannot be, in our legal system, a criterion justifying a tax that excludes from its scope properties allocated to commerce or services of the same value or even of greater value.

This difference in treatment has, in this court's view, no rational basis that would legitimize it and that would permit sustaining a finding of constitutional conformity of said norm, and the conclusions of the aforementioned Constitutional Court decision are not accepted here.

What is stated above regarding the difference in treatment between a property allocated to residential purposes and a property allocated to other purposes is fully applicable to the difference in treatment imposed by item 28.1 of the GSTT between buildable land for construction of buildings allocated to residential purposes and buildable land for construction of buildings allocated to other purposes. This differentiation of treatment under the Stamp Tax between some buildable land and other buildable land for construction has no support or legitimacy whatsoever, and constitutes an actual violation of the constitutional principle of equality based on contributory capacity.

Accordingly, item 28.1 of the GSTT cannot be applied in the specific case, and given that the assessment challenged lacks a legal basis, it must be annulled as illegal.

Considering the applicant's request to be well-founded on this ground of unconstitutionality due to violation of the principle of equality, any consideration of the other vices pointed out by the applicant becomes unnecessary and is waived.

VI. DECISION

In accordance with the foregoing, this Arbitral Court hereby decides to fully uphold the applicant's request, whereupon, under article 204 of the CRP, the application of the provision of item 28.1 of the GSTT is refused due to violation of the principle of equality (based on contributory capacity) provided for in article 13 of the CRP. Consequently, the Stamp Tax assessment now being contested is declared illegal due to absence of enabling norm, in the amount of €21,151.10, which shall be annulled, with consequent refund to the applicant of the amounts unduly paid.

Value of the case: In accordance with article 306, no. 2 of the CPC and 97-A, no. 1, paragraph a) of the CPPT and 3, no. 2 of the Regulation on Costs in Tax Arbitration Proceedings, the case is valued at €21,151.10, corresponding to the amount of the assessment challenged.

Costs: Pursuant to no. 4 of article 22 of the RJAT, the amount of costs is fixed at €1,224.00, in accordance with Table I appended to the Regulation on Costs in Tax Arbitration Proceedings, to be borne by the respondent.

This arbitral decision shall be registered and notification thereof sent to the parties.

Lisbon, 30-11-2015

The Sole Arbitrator

(Maria Forte Vaz)

[1] In this decision reference is made to various other arbitral decisions, namely those handed down in processes no. 447/2016-T, no. 415/2016-T, no. 387/2016-T, no. 294/2016-T, no. 290/2016-T, and no. 467/2015-T.

[2] See The Fundamental Duty to Pay Taxes, Almedina, 2004, p. 511.

[3] See cited work, p. 512.

[4] Cited work, p. 443.

Frequently Asked Questions

Automatically Created

Is the Stamp Tax (Imposto do Selo) under Verba 28.1 of the TGIS on construction land intended for housing with a value over €1,000,000 constitutional?
Yes, the Stamp Tax under Verba 28.1 TGIS on buildable land intended for residential construction valued at or above €1,000,000 is constitutional. Constitutional Court Decision 443/2018 expressly declared this provision not unconstitutional, rejecting equality principle challenges under Article 13 CRP. The Constitutional Court found that the annual taxation on high-value residential buildable land does not violate the principle of equality based on contributory capacity, thereby validating the legislative choice to tax ownership of such properties.
What happens when the Constitutional Court overturns a CAAD arbitral decision that refused to apply a tax norm on equality grounds?
When the Constitutional Court overturns a CAAD arbitral decision that refused to apply a tax norm on constitutional grounds, the arbitral proceedings are formally reopened (reabertura da instância arbitral). The arbitral tribunal must issue a new decision consistent with the Constitutional Court's ruling. In this case, after the Constitutional Court declared Verba 28.1 TGIS constitutional, the CAAD tribunal could no longer refuse its application on equality grounds but still examined whether all statutory requirements for tax incidence were met, ultimately annulling the assessment on different grounds—failure to prove residential purpose.
Can the Ministério Público appeal a CAAD arbitral decision to the Constitutional Court under Article 280 of the Portuguese Constitution?
Yes, the Ministério Público can appeal a CAAD arbitral decision to the Constitutional Court under Article 280(1)(a) of the Portuguese Constitution. This appeal mechanism is specifically provided for in Articles 70(1)(a), 72(1)(a) and (3) of Law 25/82 and Article 25(1) of RJAT when an arbitral decision refuses to apply a legal norm on constitutional grounds. The appeal challenges the tribunal's finding of unconstitutionality and seeks a definitive ruling from the Constitutional Court on the norm's compatibility with the Constitution.
How does the reopening of a CAAD arbitral process work after a Constitutional Court ruling reverses the original decision?
The reopening of a CAAD arbitral process after a Constitutional Court reversal follows a structured procedure: the Constitutional Court's decision becomes final (in this case, on 18-10-2018), triggering automatic reopening of the arbitral proceedings. The same arbitral tribunal issues a new decision (decisão arbitral substitutiva) that respects the Constitutional Court's binding determination on constitutionality. However, the tribunal retains full authority to examine other grounds for illegality, including whether statutory requirements for tax incidence are satisfied. The reopening is limited to issuing a fresh decision consistent with constitutional parameters, not a complete retrial.
Does the equality principle (Article 13 CRP) and ability-to-pay principle prevent the application of Verba 28.1 TGIS to construction land (terrenos para construção)?
No, according to Constitutional Court Decision 443/2018, the equality principle (Article 13 CRP) and ability-to-pay principle do not prevent application of Verba 28.1 TGIS to buildable land for residential construction valued over €1,000,000. The Constitutional Court rejected the original arbitral tribunal's reasoning that the provision violated contributory capacity principles. The Court found the legislative distinction—taxing high-value residential buildable land annually—constitutionally permissible. However, the provision's constitutionality does not eliminate the requirement to prove all three statutory incidence conditions: buildable land status, minimum valuation, and residential construction purpose.